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1904
Need of a National Incorporation Law
Horace LaFayette Wilgus
University of Michigan Law School
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Wilgus, Horace LaFayette. "Need of a National Incorporation Law." Mich. L. Rev. 2 (1904): 358-95.
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NEED OF A NATIONAL INCORPORATION LAW
W
HEN the report of the Committee on Uniformity of Iegislation was submitted to the last American Bar Association,
and consideration of the legal problems growing out of modem
commercial combinations, was urged as a matter proper for discussion and action by that association, it was gravely argued by
distinguished lawyers present that there was no legal problem to be
solved. The Committee on Commercial Law, however, thought
otherwise and said:"The American people look to the American Bar for leadership on this
question. Some one must lead. If not the lawyer, then it will be the
demagogue."
I. Is-there a legal broblem involved.' The writer thinks there is;
this view, however, having been challenged, perhaps it is worth
while to recall something of the basis for the general belief that
there is a problem of a legal character.
Early in the seventies railroad amalgamation and pools became
frequent, and to counteract, in some measure, the result, the state
legislatures very promptly established railroad commissions, and
passed maximum rate laws. In the eighties the alliance between
large shippers and transportation companies, with glaring freight
discriminations was made clear by the investigations of the Ohio,
New York, and Ontario legislatures, and the United States Congress, and twenty or more State Anti-trust Acts,' and the Interstate
Commerce Act, 2 and the National Anti-trust Acts,8 were passed.
These proved insufficient, and combination and discrimination continued.
Just before the Chicago Trust Conference, held in Sept. 1899,
the Civic Federation gathered the opinions of a great number of
business men throughout the country as to what was the effect of
these combinations, with this result :4105 thought consumers were
injured, 24 thought they were benefited, and 41 thought there was
no difference; 452 out of 506 thoughtiices were raised; 293 out of
356, thought there was danger to investors; 266 out of 345 thought
the large cafiitalizationwas dangerous to our financial system; 300
thought our foreign trade would be benefited; 180 thought wages
were increased; 148 thought they were decreased, and 67 were
doubtful; 270 regarded the tendency to combination "with abfireI See Trust and Corporation Laws. Vol. II. of Report of Industrial Commission.
2 24 Stat. at Large 379. Feby 4.1887.
3 26 Stat. at Large 209. July 2, 1890; 28 Stat. at Large 570. Aug. 15,1894.
4 Professor David Kinley, TrustConference Report. p. 530.
NEED OF A NATIONAL
INCORPORATION LAW
hensio;" 149 thought there was no danger, and 34 were doubtful;
and 340 out of 431 thought some sort of legal remedy should be
applied.
The opinions of the leading delegates to this conference, col1
lected by the Times-Herald,
agreed that the trusts were a menace
to the people, and most of them believed in federal control.
While the trust conference itself passed no resolutions on the
subject, the vast majority of the speeches indicated an apprehension
of grave danger, and suggested various legal remedies.
The trust conference of the governors and attorneys-general;
held at St. Louis at the same time, vigorously denounced such
combinations and recommended radical legal remedies.
The platforms of the political parties for several years have
resolved that there is danger from such combinations, and urged
legislative action; the messages of the governors and presidents
have done likewise. Many of the states in the past few years have
passed more stringent anti-trust acts, and many bills have been
before Congress looking to further legal regulation.
The Industrial Commission after the fullest investigation, without dissent considered that a great many things were out of joint,
and urged in detail many legal remedies, 2 some of which found
expression or partial expression in the act 3 to forward the prosecution of offenders against the anti-trust and interstate commerce
laws, the anti-rebate act, 4 and the act 5 creating the Department of
Commerce and Labor.
Such a consensus of opinion and action would indicate there
is a legal problem involved.
II. Genesis of thefiroblem. The leading legal conditions under
which the problemhas developed have been the following: (1) The
exclusive power of the National Government to control interstate.
commerce; (2) The unprecedented growth of corporations and:
corporate power; (3) The power of corporations to engage in
interstate commerce; (4) The inaction of Congress in regulating
such commerce. A short review of these may make clearer the
policy, power, duty, and method of meeting the problem.
1. The first fertinent inquiry is why and how did the power to
I Sept. 11. 1899.
*Report Vol. I, p. 5; Vol. XIX.. pp. 197, 481, 649. 947, 1010, 1067, 1083.
s Feby 11, 1903. ch. 544 ? 3.
4 Feby 19, 1903, ch. 708.
5 Feby 14. 1903. No. 87.
MICHIGAN LAW REVIEW
regulate commerce come to be given to Congress, and what duty to
promote the general welfare arises thereunder?
In 1753 George Washington was sent by Governor Dinwiddie to
the French forts above Pittsburg on the Allegheny river to inquire by
what authority the French were, and to warn them from, invading
Virginia territory.' Upon his return he urged upon the governor
"the subject of uniting the East and West by means of a public
highway.' '2 Though not heeded Washington's idea grew into "a
picture of commercial grandeur for the Old Dominion," to be
attained "by building a highway over the mountains and connecting its eastern and western termini with navigable waterways,
natural, or if necessary, artificial." 3 The plan filled his mind,
and he studied maps and routes in detail, and urged the desirability
of the project among his friends. In 1774 after another western
trip, he brought his plan before tht House of Burgesses of Virginia,
by introducing and moving "the adoption of a bill which empowered individuals to subscribe toward such an enterprise, and construct a communication at their own expense."
A similar bill was
brought before the Assembly of Maryland, but jealousies regarding
western trade between Georgetown, and Baltimore, Md., prevented
favorable action by either state.
Then the revolution came, and for ten years Washington could
give no further attention to these plans. After the success of the
revolution, "the project was of national importance-to bind the
East and West with the iron bands of commercial intercourse and
sympathy, "4 to overcome the mountain divide, and to counteract
the tendency of the trade of the then West to glide down the Mississippi to the Spanish ports.
To forward his plans, Washington had surveyed at his own
expense the roadway over the mountains from Cumberland, Md.,
to the Ohio river, and this road, twenty years later, became "the
chain of the Federal Union" by the construction on the same route
of the National road, and later by the construction of the Chesapeake and Ohio canal, and the Baltimore and Ohio railroad. In
1784 he made another western trip, and on his return reported to
the governor of Virginia, urging legislative action, saying in a
letter "the object in my estimation is of vast commercial and polit5
ical importance."
I Historic Highways, A. B. Hulbert, Vol. 3.D. 108.
2 Historic Highways, A. B. Hulbert, Vol. 3.p. 189.
4 A. B. Hulbert, Hist. Highways, Vol. 3. p. 193.
5 lb. pp. 194-7.
3 lb. 190.
NEED OF A NATIONAL INCORPORATION LAW
"Accordingly the "Potowmac Company," "to open the navigation of the Potomac and James rivers," was chartered by Virginia and Maryland.'
A joint commission to regulate the navigation of Chesapeake bay was appointed in 1785 by these two states,
and this met at Mt. Vernon for consultation with Washington. His
broader plans contemplated connecting the navigation of the
bay and the Potomac, in some way with that of the Ohio; this
would require Pennsylvania to join, and Washington also urged that
Maryland and Virginia. should settle upon a uniform system of'
duties, commercial regulations, and currency. These suggestions
were sent to the legislatures of the two states; Maryland adopted
them, and added that Delaware should also be consulted, and a conference of commissioners from all the states should be called. A little
later the Virginia legislature passed a resolution based upon the
report, suggested by Madison, inviting commissioners from all the
states to meet at Annapolis, September 11, 1786,
"To take into consideration the trade of the United States, to consider
how far a uniform system in their commercial regulations may be necessaryto their common interest and their piermanent harmony; to report an act,
etc."'
The commercial difficulties for which the Articles of Confederation furnished no remedy, never ceased to be a source of discord.
"New Jersey, placed between Philadelphia and New York, was
likened to a cask tapped at both ends; and North Carolina, between
Virginia and South Carolina, to a patient bleeding at both arms.' '
New Jersey, "who had insisted that control of commerce was a
National affair," 4 in appointing her commissioners, had authorized them to consider not only commercial, but "other imAortant
matters." Only five states responded to the call, and nothing could,
be done except to recommend the calling of another convention.
Hamilton wrote the report and call of the commissioners, saying:"In the course of their reflections * * they have been induced to think
that the power of regulating trade is of such comprehensive extent, and
will enter so far into the general system of the Federal Government, that togive it efficacy and to obviate questions and doubts concerning its precise
nature and limits may require a correspondent adjustment of the other parts.
of the Federal system," 5
I Hist. Highways Vol. 3.p.194-7: 1 Va. Laws Rev. 1803, p. 440. 446; I Laws of Md. Ed. 1811x.488.
2 1 Doct. Hist. Const. p. 2; Journal Constl. Cony. V. 36.
s Journal Constl. Cony. p. 33.
4 Secret Journals of Cong. 1, 359,
JJournal of Convention. p. 39.
MICHIGAN LA W REVIEW
and advised that commissioners be appointed by the states to meet
at Philadelphia the second Monday in May, 1787,
"To take into consideration the situation of the United States, to devise such
further provisions as shall appear to them necessary to render the Constitu"tionof the Federal Government adequate to the exigencies of the Union, and
to report, etc."'
The jealous Congress of the Confederation, yielding to the necessity, resolved, February 21, 1787, to recommend that a convention be called to meet at the same time and place "for the sole and
express purpose of revising the Articles of Confederation.' '2 Twelve
states sent delegates to the convention who after four months of
secret deliberation, agreed to the Constitution, among other things,
"in ordtr to promote the general welfare."
The third enumerated power-second only to the taxing and borrowing powers,-given to Congress, was "To regulate commerce
with foreign nations, and among the several states, and with the
Indian tribes," 3 and as Mr. Justice Miller 4 has said, without such
relief,
"As a nation we must soon have perished * * * What our deranged
finances, our discreditable failure to pay our debts, and the sufferings of our
soldiers could not force the several states of the American Union to attempt,
was brought about by a desire to be releasedfrom the evils of an unregulated
and burdensome commercial intercourse, both with foreign nations and
between the several states."
It is not too strong to say that one of the most fundamental reasons
for the creation of our Federal Government in its present form, was
to provide against the evils of an unregulated commercial intercourse,
2. Growth of corporations: Before the adoption of the Constitution there seem to have been only 21 business corporations incorporated within the United States,-10 for canal'or navigation purposes, 4 banks, 3 bridge companies, 2 trading companies, 1 mannfacturing company and one other. But the Constitution "put our
foreign commerce and that between the states upon a solid footing,"
and before the year 1800, more than 200 more charters had been
granted to business corporations,including 38 for roads,36 for bridges,
28 for banks, 26 for improving navigation, 25 insurance, 21 waterworks, 21 canals, 12 manufacturing, 6 for commerce;5 and general
incorporation laws for certain kinds of corporations (mostly
2 lb. 41.
2 1 DocL Hist. of U. S. p. S.
2 Art. 1. Sec. viii, par. 3.
4 Centennialoration, Washington. Sept. 17, 1887.
5 Two Oenturies Growth of American Law; Private Corporations, by JudZe S. It. Baldwin. Yale Bicent. Pub. pp. 275.296.
NEED OF A NATIONAL
INCORPORATION LAW
charitable or religious) had been enacted in New York, 1 Delaware2 , and Pennsylvania. 3
The Constitution had provided that "No state shall pass any law
impairing the obligation of contracts." 4 In 1782 James Wilson had
argued that the charter of the Bank of North America was-a
compact between the bank and the state of Pennsylvania, 5 and in
1819, ten years before the steam railroad was born, the Supreme
Court in the DartmouTh College case,(had held that a corporate charter
was a contract between the state and the corporation, protected
by this provision. Although it was suggested that the state might
retain control over the corporations it created by reserving in their
charters a right to amend or repeal, such practice did not become
common until many years later. As early as 1821 "the improvident
increase of corporations" was looked upon as an evil, "which
was restrictive of individual rights," and constitutional provisions
requiring two-thirds votes for their creation were made, but were
ineffectual. 7 Finally, between 1830-50, because of "the confusion,
corruption, partial, and inequitable legislation that was the result
of allowing parties to go before the legislature and ask for a special
charter," the bars were almost entirely thrown down by the passing
of general incorporation laws in nearly all the states, allowing a
few persons in a very simple way to obtain valuable corporate
franchises and privileges subject to very slight control and supervision. Since general corporation laws have been passed, and
the right to repeal or amend charters has been reserved
therein, it has not been an unusual practice for corporations formed
under general laws to purchase or obtain control over the charter
of some earlier corporation organized under a special act, whereir
such right was not retained by the state, and thereby to hold their
rights and -privileges under a contract the obligation of which
Great numbers of railroads, were
the state may not impair.
originally incorporated, or since have reorganized and operate,
under special charters. 8
Thirty years ago so conservative a writer as Judge Cooley
observed:ZIn 1784.
4 Sec. X. Art. I.
5667.
5 1 Wilson's Works. pp.
8 Indus. Com.Rept. Vol. IX, p. 911.
2 In 1787.
9 4 Wbeat. 518.
s in 1m79.
2 Kent 271.
MICHIGAN LAW REVIEW
"It is under the protection of the decision of the Dartmouth College case
that the most enormous and threatening powers in our country have been
created, some of the great and wealthy corporations having greater influence
in the country at large, and upon the legislation of the country than the
states to which they owe their existence."
3. Power of corporations to engage in interstate commerce.By the common law a corporation was considered a person within the
law, and though perhaps it could not migrate itself, it might,through
its agents, do business away from home. The common law had
recognized the right to bring a suit in a country other than the one
in which it was incorporated. 2 Such a right was recognized in the
Supreme Court of the United States as early as 1809,3 and by the
New York courts in 1820,1 although such rights had undoubtedly
long been exercised before. And in 1839 when the question came
before the Supreme Court,' it was expressly held that a bank
organized in one state with a general power to discount bills and
notes, could exercise such power out of the state, "wherever it was
found most convenient and profitable," subiect to the laws of the
state where exercised; and while it must dwell at home, by the
comity of states, it may do business abroad. It soon after became the
generally accepted practice and doctrine that a corporation might do
business and own property6 beyond its borders if its charter did not
forbid,7 or the laws of the state where it undertook to do business
did not prevent. From these premises it naturally followed that if
a corporation was a person having an inherent capacity to do business away from home, and the business done was interstate or foreign commerce over which the states had no control, then such a
corporation could engage in that business in any state without thestate's consent. Such was implied in Paul v. Virginia8 in 1868,
and held in Pensacola Telegrafih Co. v. Western Union Telegraph
Co.,9 and in Crutcherv. Kentucky, 0 where it was held that one state
I Const. Lim. p. 279-80 n. 2d 3d. (1871.)
Henriques v. Dptch West India Co. 2d Ld. Raym. 1532 (1729.)
Bank of U. S.v. Deveaux6 Crancb 61.
Silver Lake Bank v. North. 4 Zohns. Ch. 370.
Bank of Augusta v. Barle. 13 Pet. 519.
4 Runyan v. Coster. 14 Pet. 122 (1840): Thompson v. Waters. 25 Mich. 214, 12 Am. R. 243:
(Reviewing Cases.
2
I
4
b
7 Merrick v. Van Santvoord, 34 N. T. 208 (1866.)
s8 wan. 168.
' 96 Us.S.1 (1877.)
10 141 U. S. 47 (1891.)
NEED OF A NATIONAL
INCORPORATION LA W
could not "prevent a corporation engaged in interstate commerce
from entering that state and carrying on its business therein," the
court by Mr. Justice Bradley, saying further:"To carry on interstate commerce is not a franchise or privilege granted by
the state; it is a right which every citizen of the United States is entitled to
exercise under the Constitution and laws of the United States; and the accession of mere corporate facilities, as a matter of convenience in carrying on
their business, cannot have the effect of depriving them of such right, unless
Congress should see fit to interpose some contrary regulation on the subject."
4. Inaction of Congress. As early as 1824, the Supreme Court,
overruling the Court of Errors of New York, construed the word
regulate in the commerce clause to imply full power over the thing to
be regulated, and to exclude the actions of all others, while Congress is regulating it; that the power "is complete in itself, may
be exercised to its utmost extent, and acknowledges no limitations
other than such as are prescribed in the Constitution."'- From this
view it naturally followed, as it was afterward acted upon and
finally held in 18512 and 1887, 3 that
"Where the subject is national in character and admits or requires uniformity of legislation," "the absence of any law of Congress on the subject
is equivalent to its declaration that commerce in that matter shall be free."
Congress until very recently has allowed interstate commerce
except in minor matters, to go unregulatedby any action of its own.
In 1887 the Interstate Commerce Commission was established, but
after continuous and protracted litigation, was emasculated in 1897,
into a reporting and recommending body merely, by the decision of
the Supreme Court. 4 In 1890 the anti-trust act was passed and almost
immediately in the lower courts5 it was held not to apply to combinations of manufacturers, even though their products were made for
and entered into interstate trade; and this view was confirmed by
the Supreme Court in 1895.6 For a period these decisions seemed
wholly to defeat the design of the act, but later decisions have in a
measure redeemed its efficiency. 7 The act of last winter establish' Gibbons v. Ogden, 9 Wheat. 1.1 Kent. Comm. 432.
S Cooley v. Port Wardens. 12 How. 299.
a Robbins v. Shelby Taxing District.120 U. S. 489,59 Am. R. 267.
4 InterstateCommerce Com. v. Cin. N. 0. & T. P. Co. 167 U. S. 479.
a U. S. v. Greenhut. 51 Fed. 205. 213 (1892); In re Greene. 52 Fed. 104.
6 U. S. v. 1. C. Knight Co., 156 U. S. 1.
7 U. S. v. Trans.-Mo. Frt. Assn. 166 U. S. 290 (1897); U. S. v. Joint Traffic Associatigli 171
U. S. 505 (1898); U. S. v. Addyston Pipe & Steel Co. 78 Fed. 712. 85 Fed. 271. 175 U. S. 211 (1899):
U. S. v. Northern Securities Co. 120 Fed. R. 721 (1903.)
MICHIGAN LA W RE VIE W
ing a Department of Commerce with a Commissioner of Corporations, gives an investigating, reporting, and advisory authority only,
and its powers in these particulars are already reported to have been
challenged by the Standard Oil Company.
5. The best summary I have seenupon the questions involved in
this and the preceding section, of the propositions "which have been
adjudicated so often as to be no longer open to discussion," with
the cases supporting them is that of Mr. Justice Brewer in Atlantic
and Pacific Telegraph Co. v. PhiladelAhia,1 as follows:First: "The Constitution of the United States having given to Congress
thepower to regulate commerce, not only withforeign nations, but among the
several states, that power is necessarily exclusive wherever the subjects of it
are national in their character, or admit only of one uniform system or plan
of regulation."
Second; "No state can compel a party, individual, or corporation to pay
for the privilege of engaging in interstate commerce."
Third: "This immunity does not prevent a state from imposing ordinary
property taxes upon property having a situs within its territory and employed
in interstate commerce."
Fourth: "The franchise of a corporation, although that franchise is the
business of interstate commerce, is, as a part of its property, subject to state
taxation, providing at least the franchise is not derived from the United
States."
Fifth: "No corporation, eventhough engaged in interstate commercecan
appropriate to its own use property, public or private, without liability to
charge therefor."
III. The problem.
1. In general 'the problem is how to regulate
the national commerce of the large state-created corporations. The
actual regulation, taken from the states by the Constitution, and
not exercised by the National Government, has practically passed
into the control of state-created corporations, and the question is,
shall it be left there without further regulation? Whether or not it
should be furthers, regulated is a political and economic question;
if it should be further regulated, the manner' thereof is largely a
legal question.
The problem is before us because of the inaction, or inadequate
action, of Congress to meet the conditions. In this regard it is
analogous to the conditions existing before the National banking
law was enacted. The Constitution says "No state shall coin money,
emit bills of credit, or make anything but gold and silver coin a legal
tender in payment of debts.' '2
1 190 U. S. 160. on 162 (1902.)
2 Art. L See. X. cl.11.
As early as 1837 it was held that
NEED OF A NATIONAL
INCORPORATION LAW
while the states could not issue money, they could create a corporation and give it the power to issue money (not making it a legal
tender) ,' and straightway we had as bad a currency as ever afflicted
a suffering people. Congress had the power to coin money and
regulate the value thereof,2 but had failed to establish a suifficient
and uniform currency.
So far as the currency could be said to be
regulated, at all, it was practically relegated to the private interests
of 1600 "Wild cat banks," created in the several states, with an
infinite variety of special powers, under charters largely "based on
ignorance, intrigue, favoritism, or corruption," without uniformity
of creation, management, operation, liability, responsibility, or
regulation, and issuing 10,000 different kinds of notes. So far as a
national currency is concerned there was no adequate provision for
one until the National banking act3 was passed, and no uniform
one until the state bank issues were taxed out of existence in 1865.
2. Concentration of control. Our commercial condition is, similarly, an unregulated corporate regulation, with the addition that
the control of the main forces and instruments of commerce is now
vested or centered in a few state created corporations that have
become federal in.
ofieration, federated in organization, and imperial
in fiower.
General Garfield thus characterized the situation thirty years ago:
"The vast railroad and telegraph systems have virtually passed from the
control of the States. . . .The efforts of the States to regulate their railroads
have amounted to but little more than feeble annoyance. In many cases
the corporations have treated such efforts as impertinent intermeddling...
In these contests the corporations have become conscious of their strength,
and have entered upon the work of controlling the states.' 4
If this was true in 1873, how much more cause for concern, and
need of adequate regulation, are there arising from the development since? Prior to 1870, scarcely any railroad system was over
1000 miles in length,-consolidation and effective pooling had only
fairly begun; between 1870 and 1890, railroad systems were formed
controlling 5000 miles; between 1890 and 1898, single systems of
10000 miles or over were formed, and now the five principal systems
aggregate nearly 150,000 of the total 200,000 miles of railroad in
this counitry. In 1900 one-fourth of all the railroad shares were
I Briscoe v. Bank. 11 Pet. 257.
2 Art. I, Sec. Vi.
cl.5.
2 Acts. Feby. 25,1863, and June 3. 1864.
4 The Future of the Republic,3. A. Garfield. 2 Works, V, 61.
MICHIGAN LAW REVIEW
held by other railroad companies, and undoubtedly this has greatly
increased since. A late authority says that 19 railroad systems,
practically controlled by nine men closely associated in various
ways, operate 165,321 miles, or nearly 81 per cent of all the railroad
mileage in the country.'
Concentration in the industrialand financial fields has been even
more rapid.
It has been stated that between 1860 and 1870 only
two "industrial trusts" formed by combination of formerly competing
concerns, were created with a total capitalization of $13,000,000;
between 1870 and 1880, four more were formed with $135,000,000
nominal capital; between 1880 and 1890, eighteen more were formed
with $228,000,000; and according to the last census there were then
183 conibinations with a capitalization of $3,619,039,2u0; in 1902,
there were said to be 213 combinations, with nearly $7,000,000,000 capitalization, while a later authority says there are 850 industrial combinations not including railroad mergers, with a nominal
capitalization of $9,000,000,000. These vast sums are not the most
important point; the concentration of control is still more important. This has already been notedasto railroads. Ithasbeen said:"The property which the Amalgamated Copper Company now controls
was once perhaps a thousand mining claims. . It is estimated that the Standard Oil Company has taken, by contract or by force the business of ten thou2
sand corporations and merchants in all parts of the Union."1
The estimated wealth of the United States, according to the census
of 1900, was $94,300,000,000. The control of a sum nominally
equal to one-twelfth of this is represented by the 24 directors of the
United States Steel Corporation; they are, also, the influential
directors in more than 200 companies that operate half the railroad
mileage of the country; dig and carry the iron and coal; control the
greatest oil, copper, sleeping car, telegraph, express, agricultural
implement, bridge, traction and shipping interests in the country;
also the five greatest insurance companies, ninde of the greatest
banks, and sixteen of the largest trust companies with their large
chains of affiliated banks and trust companies, throughout the
country. This group of men controls corporations with a nominal
capitalization of $9,000,000,000; and of the 24, two, Mr. Morgan
and Mr. Rockefeller, are said virtually to control eight out of the
3
nine billions.
I S. S. Pratt, in World's Work, Dec. 1903, p. 4262.
1 Report of Com. on Commercial Law, Am. Bar. Assn. 1903, p. 6; Am. Law. Rev. Nov.Dec. 1903. p. 828.
s See Article in World's Work for Dec. 1903, Who owns the United States?
NA'ED OP A NATIONAL INCORPORATION LAW
3. Extent of operations. Not only is concentration of control
important, but the extent of operations is of great significance. The
Standard Oil wagon is seen in nearly every city, village, and hamlet
in the land, and its operations extend around the world. The 213
or more separate plants of the United States Steel Corporation are
located and operated in nearly half the states, and its trade invades
the markets of the world. And so withmany others. As Mr. Dill
says:"The trusts today are a force and power national in extent. National in
extent in that their business not only extends throughout all of the original
and acquired territory of this country, but is rapidly over-leaping the boundaries of our States and possessions, entering into foreign countries and making
rapid inroads into foreign markets; and national in extent also in that their
financial roots extend down and into every commonwealth and municipality
of this country."'
4. Form of organization. The great aggregation of wealth represented, the extraordinary concentration of its control, and the vast
extent of the operation, are not more material than is the affiliated
and federated form of organization. Through the interholdings of
corporation shares, interests of the greatest diversity are held and
controlled in harmony; and through the method of the holding
corporationis susceptible of unlimited extent, concentration, and
duration. There are now not only combinations of combinations,
but corporations of corporations, joined in a federal union, that can
act with the speed, the certainty, the vigor, and the effect of a
monarchy, and under the laws of many states where they are or
may be formed, with less responsibility to their constituents and to
the public than any constitutional monarch in the world. The
order of the Standard Oil Co., or of the United States Steel Corporation, and of many others, as to the prices of their products or of the
raw material they use, act with a directness and rapidity greater and
affect a larger territory in a shorter time, and without warning,
than the act of any legislature in the world.
5. Laxity of state laws. Under present laws in several states the
directors may provide, in the organization of the corporation, for
no effective control over their acts, liabilities, or operations by the
members, and the laws of such states provide no public control of
consequence outside of taxation. Most of these great corporations
have been organized under the same laws as the United States Shipbuilding Co., or laws not even as strict as they are, and allow of
2 Address, National Incorp. Laws for Trusts, Harv. Univ. March 1902.
MICHIGAN LAW REVIEW
the same unbridled effrontery, speculation, peculation, and fraudulent promotion that seem to have taken place there, and without
certain and adequate remedy to the sufferers. The shares of corporations organized under the same laws, and with no more protection, are widely scattered over the land, and if like transactions
have not occurred, or do not occur, in many other cases it will not be
because the laws are adequate to prevent them. As a hotel man
recently said in New York the shares are insecuriiesrather than anything else, and many a one finds himself in the same predicament
as he,-"I have made my pile, and it is safely invested in Steel
Common, Amalgamated Copper, and Shipbuilding securities, and
nobody can take it away from me,"-or wont.
6. Diversity of state laws. The great diversity of state laws
under which corporations may be formed, confuse the investor, and
often mislead him to believe there is safety where there is none.
The vast variety of these laws, and in many cases the uncertainty
of their provisions, make a jungle of confusion wherein the dishonest promoter or manager finds safety.
Aside from this, many states, by liberalizing their laws, so as to
induce corporations to incorporate within their borders, for the
revenue derived from the fees, have made it possible to get a
charter where there is
"No franchise tax; no limit on capitalization; no amount of stock
required to be subscribed; no state control, no examination of books; stock
non-assessable; keep office any where; do business anywhere."
Some of the states make a business of spawning spurious corporations to infest other states, than the one in which they are
incorporated, with their nefarious practices and progeny.
7. Methods used to build up trusts. The methods whereby these
institutions have been built up must also be considered. From the
investigations of our various commissions during the past twenty
years it has been made certain that the particular devices used in
most cases, which have brought the problem before us in the condition above pointed out, have been mainly four: (1) The acquisition, practically, of monopoly power either by grant of franchises of
various kinds, or through discriminationin transportation charges;
(2) The destruction of legitimate competition by the predatory
competition of the holders of monopoly power; (3) The overcafitalization of corporations; and (4) Dishonestand irresponsible corporate
promotion and management. The first three have been usual, and
the last not infrequent. The first three have hardly been unequi-
NEED OF A NATIONAL INCORPORATION LA WV
vocally denied, and the 2d and 3d generally defended as justifiable,
by those benefiting by them. There is, however, almost no doubt
that the first two destroy the independent and honorable business
of vast numbers of honorable and competent business men. Of
course it is also said that the consumer is benefited by lower prices;
but such statements are not generally believed or found to be correct. That illuminating oil goes up, and crude goes down, in price,
-and dividends get larger, is not an unusual experience. The first
three make, or give the power to make, all consumers pay tribute
into the coffers of those whose will fixes the price as their interes
dictates; and the last two enable the unscrupulous to shear the
lambs,-and if greatly successful in these various and devious ways
are frequently looked upon as economically righteous.
8. Eftect, or the danger threatened. Judge Walton of the Supreme
Judicial Court of Maine has pertinently observed that:"Men are mortal, and their combinations short lived, but corporations are
immortal and their combinations and acquisitions may go on forever; they
may add field to field, wealth to wealth, and power to power, till they become
too strong for the government itself; all experience shows that such accumulations of wealth and power are dangerous to the public welfare." '
Any person, with no inclination to see imaginary dangers, is,
nevertheless, instinctively led, or reluctantly driven, to ask if we
are approaching the condition of universal monopoly of which
Fourier wrote nearly one hundredyears ago:
"The organization of the commercial classes into federal companies, or
affiliated monopolies. . will reduce the middle and laboring classes to a state
of commercial vassalage. . And we shall see the reappearance of feudalism."
Without in the least forgetting the value of corporate organizations, and their necessity in our business life; without denying
there can be great benefit derived from the nationalization rather
than the localization of our industries; and admitting that concentration of control and management may result in great savings in
production and distribution,-and believing that if all these are honestly and honorably done, they may be made to promote the general welfare,-yet, if our diagnosis is correct, the fact remains, that
the National Government does not, the states cannot, and the corporations do, control our industries,-but not "in order to promote the general welfare." As was said in the Addyston Steel Co.
case, private contracts between such corporations "may in truth
I Brunswick G. ,. co. v. United Gas Co., 85 Me. 532.35 Am. St. R. 385, 387 (1893).
MICHIGAN LAW REVIEW
be as far-reaching in their effect upon interstate commerce as
would the legislation of a single state of the same character."'
IV. Power to controlour commerce andcorfiorations: 1. In general.
If the predicament we are in is due to unregulated commerce, and
the inadequate control of the corporations carrying it on, we should
get relief by proper regulation of both; but the two are so related
that attempts to regulate one without the other, or for one government to try to regulate the commerce, and forty-five different governments undertake to regulate the corporations that carry it on,
will inevitably result in failure. As we have seen, the particular
devices whereby evil is wrought or danger threatened are unjust
discriminations in transportation, predatory competition, overcapitaliiation, and dishonest corporate management,-the first two
are matters of commerce, and the last two of corporation law,-and
though, separable in the mind, they are inextricably bound together
in fact. Nothing less than one system of regulation that can reach
all can be successful. Where is the power to do this?
2. Power of the states: As to the commerce which has become
national in extent, from what has already been said, it is clear this
is beyond the powers of the states, first, because the Constitution
has taken away the power, and second, because if they had it, it
would be impossible to secure the necessary uniformity of regulation to be efficient or desirable.
By the decisions, a state cannot exclude a corporation engaged in
interstate commerce, 2 nor tax such commerce,3 even if the corporation is one of its own creation, 4 nor tax the agents engaged in it, 5
nor fix the rates for carrying it, 6 nor exclude articles of such commerce, 7 or persons coming into,8 or going out of the state. 9
To secure the uniformity of regulations was the reason the power
to regulate national commerce was given to Congress, and it is idle
to consider that uniformity will ever be attained by leaving, or
further surrendering, this power to the states, as has been suggested.
I Addyston Pipe & Steel Co. v. 175 U. S. 211 (1899).
s Pensacola Tel. Co. v. W. U. Tel. Co.. 96 U. S. 1; Cooper v. Ferguson. 113 U. S. 727.
a Brown v. Maryland, 12 Wheat. 419.
4 Philadelphia Steamship Co. v. Pennsylvania, 122 U. S. 326.
&Robbins v. Taxing District, 120 U. S. 489.
6 Wabash R'y Co. v. Illinois, 118 U. S. 557.
7 Bowman v. Chicago & N. W. Ry., 125 U. S. 465; Collins v. New Hampshire, 171 U. S. S0.
I Chy Lung v. Freeman, 92 U. S. 275.
9 Crandall v. Nevada, 6 Wall. 35 (1867).
NEED OF 4 NATIONAL INCORPORATION LAW
As to regulating the corfiorations created by the states, it would
seem that a state could control its own corporations, and exclude
the foreign corporation,-but the very corporation to be controlled
is the one that carries on national commerce,-and this takes it out
of any effective control, at least when organized in another state.
But aside from these considerations many of the great corporations are so big and powerful as to make it practically impossible to
secure adequate control, if the legal authority existed. The net
earnings of the United States Steel Corporation for 1902, were over
$133,000,000, -more than the total sum raised by taxation in New
York and Ohio, together, in 1898, and twice the amount raised by
tax in Pennsylvania the same year. The gross income of the same
corporation for 1902,$565,000,000, was more than the total ordinary
receipts of the National Government for any year prior to 1899. Its
stock and bonds are more than the total capital engaged in manufacture in any state of the Union, except New York and Pennsylvania; and likewise the same are greater than the value of all the
farm products of any state except Illinois and Iowa. If Judge
Grosscup could have been induced to act as attorney for the Northern Securities Company, in the Supreme Court, and been successful
in its defense, the company could easily afford to pay him a fee,
the interest of which would bring him for life a greater return than
his salary as a United States judge. "The only possible competitor for a billion dollar trust is a hundred billion dollar State."'
But the diversity of the laws under which state commercial corporations are or may be formed is as great as the diversity of the
commercial regulations of the states was before the Constitution
was formed, and has similar effects.
These corporate bodies owe their existence to the different laws
of the different states. Wherever they may do business or seek
members, all questions relating to the organization, amendment,
internal control and regulation, rights, duties and liabilities of
members and officers, issue, payment, and transfer of shares, duration, dissolution, and winding-up, are determined by the law of
the state where organized, though the members may reside in every
state in the Union. Every contract made, wherever made, is subject
to the provisions of the charter, which every person who deals with
the corporation is presumed to know. The operations of the corporation and its public rights and duties are determined both by
I
Report Com. Am. Bar Assn., 1903, p. 18.
MICHIGAN LA W RE PrkPVI
charter provisions, and by the law where the transaction occurs.
On such a question as to what duty there Is, and the extent of it,
to receive and transport safely freight from one state to another,
there are seven different views. 1
This is a sample of the variety of views upon many questions.
The corporate property and shares are usually subject to as many
different methods of valuation and taxation, as there are states in
which they are located, and in the case of intangible property and
shares are not infrequently subject to double, triple or quadruple
taxation. Reports and fees required, and terms and conditions of
the police control are as diverse as the places in which business is
done. Every session of the legislature in each of the forty-five
states, and many of the decisions of the courts of last resort, tend
to increase, rather than diminish, the diversity. Those who wish
to engage in productive industry, not of a purely local character,
and in an honorable way, are inordinately inconvenienced and
unduly hampered by the conflicting provisions of the state laws.
The policy of the states will never be in harmony. Situation, local
pride, political bias, party policy, peculiar industries, or financial
interest will produce and increase the differences.
3. Nationalpower. If state power is too weak for effective regulation, what power has the National Government, over national
commerce and over the corporations carrying it on?
As to commerce. Mr. Justice Harlan, in the Lottery Lase,2 cautiously said:"The whole subject is too important, and the questions suggested by its
consideration are too difficult of solution to justify any attempt to lay down a
rule for determining in advance the validity of every statute that may
be enacted under the commerce clause."
Nevertheless, after an extensive review of the cases from Gibbons
v. Ogden 3 to Hanley v. Kansas City Southern Ry, 4 he concludes
that "Congress alone has the power to occupy, by legislation, the
whole field of interstate commerce," and as stated In re Rahrer,6
"The framers of the Constitution never intended that the legislative
power of the Nation should find itself incapable of disposing of a
subject specifically committed to its charge," and points out that
"Commerce among the states embraces navigation, intercourse, communication, traffic, the transit of persons and the transmission of messages by
I Origin of Right to
1903, V. 32.
2 188 U. S. 321 (1903).
4 187 U. S. 617
ngage in Interstate Commerce, C.P. Prentice, Hary. L. R., Nov.,
3 9 Wheat. 1 (1824).
6 140 U. S. 54S.
NEED OF A NATIONAL INCORPORATION LAW
telegraph. . . . The power to regulate commerce among the several
states is vested in Congress as absolutely as it would be in a single governmnent, having in its Constitution the same restrictionson the exercise of the
power as are found in the Constitution of the United States."
Commerce includes the subject, matter of traffic and intercourse,
the fact of traffic and intercourse, and the instrumentalitiesby which
it is carried on.
The subject-mattermay be "things, goods, chattels, merchandise,
or persons.'
I
The fact of intercourse includes the negotiation of the sale of
goods which are in other states whether by solicitor or sample, 2 the
purchase of goods between citizens of different states, made in
either state, 3 communication between persons by the transmission
of intelligence by telegraph 4 or telephone, 5 the transit of persons, 6
or the transportation of persons or property, 7 by express,8 or piping
of oil or gas,0 or driving of cattle,10 in completion of a commercial
transaction across state lines, and also the written documents
whereby such transactions are effected.
As to the instrumentalities, Chief Justice Waite said in Pensacola 7el. Co. v. Western Union Telegraph Co. 12
"Postoffices and postroads are established to facilitate the transmission of
intelligence. Both commerce and the postal service are placed within the
power of Congress, because being national in their operation, they should be
under the protecting care of the National Government. The powers thus
granted are not confined to the instrumentalities of commerce, or the postal
service known or in use when the Constitution was adopted, but they keep
pace with the progress of the country, and adapt themselves to the new develMcCall v.California, 136 U. S. 104; Lottery Case, 188 U. S. 321 (1903).
1 Cooper v. Ferguson, 113 U. S.727 (1885); Robbins v. Taxing District, 120 U. S. 489, 59
Am. R. 267 (1s87; U. S. a. X. C. Knight Co., 156 U. S.1 (1895"); Hopkins v.U. S. 171 U. S. 578
(1898); Addyston Pipe Co. a. U. S. 175 U. S.211 (1899).
3 Same cases as preceding note. McNaughton v. McGlrl, 20 Mont. 124,63 Am. St. R.
1
610 (1897J.
4 Pensacola Tel. Co. v. W.U. Tel. Co. 96 U. S. 1 (1877); Western Union Tel. Co. w. Pendleton 122, U. S.347.
'Matter of Pennsylvania Tel. Co., 48 N. J. Eq. 91,27 Am. St. R. 462.
6 Passenger Cases, 7 How. 283 (1848); Crandall v. Nevada, 6 Wall. 35 (1867); People v'.
Compagnie Generale, 107 U. S.59; Covington Bridge Co. a&.Kentucky, 154 U. S.204,218.
7 TheDaniel Ball, 10 Wall. 557 (1870); State Freight Tax Cases, 15 Wan. 232 (1872); Philadelphia Steamship Co. v. Pennsylvania, 122 U. S.326 (1887).
8 Crntcher v. Kentucky, 141 U. S. 47 (1891).
9 State v. Indiana etc. Co., 120 Ind. 575 (1889).
20 Kelley v. Rhoads, 188U. S.1 (193).
It Almy v. California, 24 How. 169; Fairbanks v. Uo S.181 U. S.283.
'1 96 U. S. 1. 9.12.
MICHIGAN LA W R.#VIEW
opments of time and circumstances. They extend from the horse with itsrider to the stage coach, from the sailing vessel to the steamboat, from the
coach and steamboat to the railroad,and from the railroadto the telegrapih,
as these new agencies are successively brought into use to meet the demands
of increasing population and wealth. They were intended for the government of the business to which they relate at all times and under all circumstances."
Exactly when such commerce begins and ends is a difficult question. The production or manufacture' of things intended for
interstate commerce, or gathering them together for the purpose of
sending them to other states,2 or after sending them into another
state, keeping them there for the purpose of use or sale,8 if not in
the original package, 4 is not interstate commerce.
Insurimce, 5 loaning money,6 dealing in foreign landsJ dealing in
bills of exchange, 8 carrying on building and loan associations, 9
mining, 0 or carrying on the business of brokers or commission
merchants," is not interstate commerce so far as to prevent state
regulation, or within the present anti-trust act.
Under the power to regulate, the question naturally arises as to
how far Congress can f1 ?ohibit interstate commerce. It has been
said that
(1) "The power to regulate commerce among the several states is granted
to Congress in terms as absolute as is the power to regulate commerce with
foreign nations," 2 or with the Indian tribes, it might have been added. (2)
"The Federal power of commercial regulation includes necessarily a power
of police supervision."I s (3) "The power to regulate commerce may be
used for the promotion of' 4 other objects of national concern," as excluding
and deporting foreigners. And finally, (4) The constitutional amendments that forbid a person from being deprived of life, liberty or property do
IU. S. v. E. c.Knight Co.. 156 U. S. 1 (1895).
2 Coe v. :Errol. 116 U. S. 517 (1886); Diamond Match Co. v. Ontonagon, 188 U. S. 82 (1903).
S Brown v. Houston, 114 U. S. 622.
4 Scholienberger v. Pennsylvania, 171 U, S. 1 (1897); May v. New Orleans. 178 U. S. 496
(190o).
5 Paul v. Virginia, 8 Wall 168; Hooper v. California, 155 U. S. 648 (1894).
6
Nelms v. Mortgage Co. 92 Ala. 157.
7 Honduras Com. Co. v. State Board. 54 N.J. L. 278.
Bamberger v. Schoolfield, 160 U. S. 149.
D
* Southern Building and X,. Assn. v. Norman. 98 Ky. 294.
20 Utley v. GardnerLode Min. Co.. 4 CoL 369.
11 U. S. v. Hopkins, 171 U. S. 578 (1898).
12 Brown v. Houston. 114 U. S. 622,630.--Mr. Justice Bradley; Pittsburgh Coal Co.x. Dates,
156 U. S. 577. 587.
29 Prentice & ]gan, The Commerce Clause. p. 337.
It U. S. v. Williams. 83 Fed. 997; Pone Tue Ting v. U. S. 149 U. S. 698.
NEED OF A NATIONAL INCORPORATION LA V
not limit, but are "to some extent, limited by the commerce clause of the
Constitution." I
As to foreign commerce, Hamilton says:"Every person, by the common law of each state may export his property
to foreign countries, at pleasure. But Congress in pursuance of the power of
regulating trade may prohibit the exportation of commodities. "' 2
And it was held in 1808, and hardly questioned since, that Cong-
ress might establish an absolute embargo for an indefinite duration.3 The raising of revenue by means of customs tariffs, was, at
the time the Constitution was framed, considered as much a method
of regulatingcommerce, as of obtaining a revenue, and afiroective
tariff can be based upon no other constitutional provision than "in
order to promote the general welfare," not by the revenue obtained,
but by the effect on commerce. And this is the basis upon which
it has been placed. 4 Under the tariff laws, the importation of
many "proper articles of commerce," have been excluded or practically prohibited by high duties. Finally the constitutional convention seemed to think the power to regulate foreign commerce
would include the power tofirohibil the slave trade prior to 1808,
unless it was expressly excepted.
It has been held that Congress may prohibit the sale of intoxicating liquors, or deleterious articles to the Indian tribes. 5
In the regulation of interstate commerce it has also been held
that Congress may prohibit combinations, 6 or contracts 7 in direct
restraint thereof, or the transportation or introduction of diseased
live stock into one state from another.8 Although distilled liquors
are "lawful articles of commerce,' ' yet Congress can make them
subject to the frohibilory laws of the state into which they have
been shipped for sale from another 0 state. And finally Congress
can prohibit the carriage of lottery tickets into one state from
IlAddyston Pipe Co. v. U. S. 175 U. S. 211; State v. Firemen's Fund Ins. Co. 152 Mo. I;
State v. Buckeye Pipe L. Co. 61 0. S. 520; State v. Smiley, 65 Kan. 240. 69 Pac. 199 (1902).
Argument on a National Bank, Ford's Federalist. p. 662.
£ U. S. v. Brigantine William, 2 Hall L. J. 255 (1808), 2 Kent, Com. 432.
4 Story on the Constitution, 9 963.
U. S. Holliday, 3 Wall, 407; U. S. v. Mayrand, 154 U. S. 552.
'U. S. v. Trans-Missouri Frt. Assn. 166 U. S. 290 (1897); U. S. 3olnt-Traffic Assn., 171 U.
S. 505 (1898).
7 U. S. v. Addyston Pipe Co., 175 U S. 211 (1899).
9 Reid v. Colorado, 187 U.S. 137 (1902).
9 Bowman v. Chicago. etc. Ry. Co., 125 U. S. 465; Lelsy v. Hardin. 135 U.,S. 100.
20 In re Rahrer, 140 U. S. 545; Vance v, Vandercook, 170 U. S. 438.
a
MICHIGAN LA W REVIEW
another,' or sending letters or circulars relating to lotteries through
the mails.2 State laws forbidding the introduction of convict made
goods, 3 or regulatinginterstate passengers, 4 or forbidding the introduction of articles proper for commerce, 5 are void because they
infringe upon the exclusive power of Congress to regulate commerce.
In addition to the foregoing, Congress has forbidden the transportation of negroes into a state 6 or the carrying or sending of any
7
literature, picture, or article designed for indecent or immoral use,
or convict made goods,8 or to transport the dead bodies of wild
animals br birds killed in violation of the laws of the state where
the attempt is made.9
All the foregoing are so closely allied to a Police Power in the
United States, based on the commerce clause as to be practically
indistinguishable from it, -and if, as said above, the commerce
clause gives to the National Government the same power that a state
government would have with the same constitutional provisions,
it would follow that any regulation made by Congress, not merely
for the purpose of evading other constitutional provisions, would
be beyond the authority of the courts to declare void. The necessity and wisdom of such a regulation are for Congress to determine. 10
While it may be questionable whether Congress could prohibit
interstate commerce altogether, n (although this was done during
the Civil War as to the seceding states) ,12 yet there can scarcely be
a doubt that regulate includes making and enforcing the rule and
conditions under which commerce may be carried on, as the public
welfare demands, and forbidding it being done otherwise.s There
is nothing in this view inconsistent with the proper exercise of the
state police powers, 14 or with the liberty of citizens.
I Lottery case. 188 U. S. 321 (1903).
2 In re Rapier. 143 U.S. 110.
I People v. Hawkins. 157 N. Y 1.
4 Hall v. De Cuir,95 U. S. 485.
5 rimmer v.Rebman. 138 U. S.78.
62 U. S. Stat. at L. 205 (1803).
1 Act Feby 8, 1897. c. 172.29 Stal at L. 512 8 Act of July 24.1897, 30 Stat at L. 211 9 31.
o Act May 25,1900,31 Stat at L. 187, 3.
I Gibbons v. Ogden. 9 Wheat. 1.
ii Dissenting opinion of Chief Justice Fuller, in Lottery case, 188 U. S. 321. The'dissent
however. is based as much upon the view that a lottery ticket was not a subject of commerce, as held by the majority of the court.
12 Act of July 13,1861,12 Stat. atL. 247, R. S. J 5301.
13 Gibbons v.Ogden, 9 Wheat 1,196.
14 Hennington v. Georgia, 163 U. S. 299; New York etc. RR.v.New York, 165 U. S. 628"
Lake Shore & M. S. Ry.v.Ohio, 173 U. S.285.
NEED OFA NATIONAL
INCORPORATION LAW
As to corporations. The next point for consideration is what power
has Congress to establish corfiorations to engage in interstate commerce.
Although by the Articles of Confederation, Congress had no power
except such as was expressly delegated to it, yet within three months
after these Articles went into effect, the Congress of the Confederation
approved a proposition to incorporate a national bank, and December 31,1781, proceeded to institute and incorporate the Bank of North
America.1 The power to do this was hardly questioned. Later, in
defense of the bank, James Wilson, in 1782, laid down the doctrine
of implied constitutional powers in the following words: " Whenever
an object occurs, to the directionof which no particularstate is competent, the management of it must, of necessity, belong to the United
States in Congress assembled. " 2 In the Constitutional Convention of
1787, Mr. Madison twice moved that Congress have power "To grant
charters of corporations in cases where the public good may require
them and the authority of a single state may be incompetent. " 8 It
was rejected partly because it'was unnecessary, 4 and might lead to
creation of monopolies. 5 Mr. Wilson thought it necessary to frevent a state from obstructing the generalwelfare, and observed that
mercantile monopolies "are already included in the power to regulate trade." 6 Mr. Gerry refused to sign the final report because,
(among other things), "under the power over commerce, monopolies may be established.' '7 In 1791, upon the recommendation of
Mr. Hamilton, Congress chartered the Bank of the United States.
The constitutionality of the bill to establish it was attacked in the
House of Representatives, and President Washington, after taking
the written opinions of the Attorney-General, Randolph, the Secretary of State, Jefferson, (both of whom opposed it), and of the
Secretary of the Treasury, Hamilton, signed the bill. 8 These
opinions are classic on the subject of the implied powers of the
government. Among other things Hamilton argued:1 2 Kent. Comm. 254; I Wilson's Works. p. 549.
$ I Wilson's Works. p. 558.
S Journalof Conv. (Aug. 18), p. 549; (Sept. 14), p. 725; the wording in the last case was;"To grant charters of incorporation where the interest of the United States might require.
and the legislative provisions of individual states may be incompetent.:
4 Mr. King, Journal Cony. p,726.
5Mr. King and Mr,Mason, lb.
'lb.
T lb. p. 740.
1IStat. at 1. 191; 2 Kent, Comm. 248.
MICHIGAN LAW REVIEW
Congress may create a corporation in relation "to the trade with foreign
countries, or to the trade between the states, or with the Indian tribes; because
it is the province of the federal government to regulate those objects, and
because it is incident to a general sovereign or legislative power to regulate a
thing, to employ all the means which relate to its regulation to the best and
greatest advantage."' And further, "Suppose a new and unexplored branch
of trade should present itself with some foreign country, suppose it was man-'
ifest that to undertake it with advantage required a union of capitals of a
number of individuals, . . . what reason can there be to doubt that the
National Government would have a constitutional right to institute and incorporate such a company? None. They possess a general authority to regulate trade with foreign countries. This is a means which has been practiced
to that end, by all the principal commercial nations, who have tradingcompanies to this day which have subsisted for centuries. . . . A-power to
regulate trade, is a power to make all needful rules and regulations concerning trade. Why may it not, then, include that of erecting a trading company?
. .
.
It is remarkable that the state conventions, who had proposed
amendments in relation to this point, have most, if not all of them, expressed
themselves nearly thus: Congress shall not grant monopiolies, nor erect any
compiany with exclusive advantages of commerce. Thus at the same time
expressing their sense that the power to erect tradingcompanies or corporations was inherent in Congress, and objecting to it no further than as to
the grant of exclusive privileges."1
Distinctions that are yet important were drawn as clearly in these
great arguments as they ever have been since. Mr. Hamilton had
argued that the establishment of a bank had a natural relation to the
regulation of trade by creating a convenient and adequate medium
of exchange to carry on commerce. Mr. Jefferson on this point
.said:"To erect a bank, and to regulate commerce are very different acts. He
who erects a bank, creates a subject of commerce in its bills; so does he who
makes a bushel of wheat, or digs a dollar out of the mines; yet neither of
these persons regulates commerce thereby. To make a thing which may be
bought and sold, is not to prescribe regulations for buying and selling.
Besides, if this was an exercise of the power of regulating commerce, it would
be void, as extending as much to the internal commerce of every state, (that
is to say the commerce between citizen and citizen), as to its external (that
is to say its commerce with another state, or with foreign nations, or with
the Indian tribes)." 3
This is the exact distinction made in the sugar trust case in 1895. 4
The charter of the bank expired in 1811, when the opposition was
in power and its charter was not renewed. A new bank was, how1 Argument of Hamilton, Ford's IM. of Federalist, p. 657.
s Hamilton's Argument. Ford's Federalist. p. 676.
2 Jefferson's Argument. Ford's Federatist, p. 652.
4 U. S.v.E. C.Knight Co., 156 U. S.1.
NEED OF A NATIONAL INCORPORATION LAW
ever, chartered' with similar powers in 1816. The act establishing
it was signed by Madison, and its constitutionality was brought
before the Supreme Court in 1819, and sustained by the decision of
Chief Justice Marshall, along the lines of the arguments made by
Mr. Wilson in regard to the Bank of North America, and Mr. Hamilton as to the first United States Bank. Since this decision it has
not been doubted that,
"Congress may create corporations as appropriate means of executing the
powers of government, as, for instance, a bank for the purpose of carrying
on the fiscal operations of the United States, or a railroad
corporation for the
3
purpose of promoting commerce among the states."
Early in the century Congress authorized the construction of the
National road from the Potomac to the Ohio rivers ;4 and Congress
has authorized the incorporation of the present National banks5 , the
Union Pacific, 6 Northern Pacific, 7 Atlantic and Pacific, 8 and the
Texas and Pacific9 railways ;the Maritime Canal Co. of Nicaragua, 10
various bridge companies," and National Trades Unions ;12 state
incorporated telegraph companies have been authorized to construct
their lines on all post-roads, even where a state had granted to
another company the exclusive right to construct such
line,' 3 and
1
i
purposes.
such
for
post-roads
all railroads are made
In Californiav.Pacific Railroad Co.15 it was specifically held that
Congress has authority in the exercise of its powers to regulate commerce r iong the several states to construct or to authorize individuals or corporations to construct national highways and railroads
across the states as well as the territories of the United States, and
bridges from state to state. As Mr. Justice Bradley said:1 3 Stat. at Lg.. 266.
2 McCulloch v. Maryland. 4 Wheal 316; Osborne v. Bank of U. S., 9 Wheat. 738,
3 Luxton v. North River Bridge Co.. 153 U. S. 525 (1894).
4 Indiana v. U. S.148 U. S. 148.
5 12 Stat, at L. 665 (1862).
6 12 Stat, at L, 489 (1862).
7 13 Stat, at L. 365 (1864).
8 14 Stat. at TL.292 (1866).
9 17 Stat. at LT.
59 (1872).
10
25 Stat. atL . 673 (1889).
11 As North River Bridge Co., July 11, 1890. 153 U. S. 525.
1 24 Stat. at TL.86 (1886).
Pensacola Tel. Co. v. W. U. Tel. Co.. 96 U. S.1 (1877.
Rev. Stat. 9 3964; 17 Stat. at L. 308, j 201.
127 U. S.1 (1887).
MICHIGAN LA V RE VIEW
"Without authority in Congress to establish and maintain such highways
and bridges, it would be without authority to regulate one of the most important adjuncts of commerce.
. .
Congress has plenary power over the
whole subject."
Such a national corporation may exercise the power of eminent
domain within the states if so authorized, without the state's consent,1 it is exempt from state control or taxation so far as the same
might impair its efficiency as an instrument for carrying on the purposes for which organized, 2 and has the right to sue in the United
States courts. 3
The national constitutional provision forbidding
"impairing the obligation of contracts" does not specifically apply
to Congress, although the provisions of the fifth amendment,-that
"no person shall be deprived of life,liberty,or property without due
process of law; nor shall private property be taken for public use,
4
without just compensation,"- do apply.
The authority of Congress to create corporations in the District of
Columbia, and in the Territories, and to exercise control over them
has never been doubted,
and is as extensive as is the
power of the legislature of any state to create corporations within
the state. 5 Such corporation may be empowered by state comity,
to act outside of the District or territory in which it is located,'
but it cannot, though empowered to do so, act in another state without that state's consent 7 unless it is engaged in the performance of
some national function.
From the foregoing it seems certain that the power of the National
Governmenit is ample to enable it to create whatever transmission,
transportation, or trading corporations, to engage in interstate commerce, that it may deem wise to establish.
But is this sufficient?
The combinations of which complaint is made are not only engaged
in the foregoing but in growing, mining, or making things, and
neither of these is commerce. Can the National Government incorporate companies to do these things within the states? The answer
is difficult, but probably the government cannot do so if that is the
I Kohl v. U. S. 91 U. S. 367 (1875); Luxton v. North River Bridge Co.. 153 U. S. 525 (1894).
2 National Bank v. commonwealth, 9 Wall. 353 (1869); Railroad Co. v. Peniston, 18 WalL 5
(187.3); 'Farmers& M. Natl, Bank v. Dearing, 91 U. S, 29; gaston v. Iowa, 188 U. S. 220 (1903).
3 Texas etc. R. Co. v. Cody. 166 U. S. 606 (1897).
4 Corporation of Jesus Christ v. U. S.. 136 U. S. 1 (1890); U.S. v. Union Pacific Ry., 98 U. S.
569 (1878); Sinking Fund Cases, 99 U. S. 700.
5 Huntington v. Savings Banks, 96 U. S. 388; Hadley v. Freedman's Savings, etc Co.. 2
Tenn. Ch. 122 (1874).
6 Daly
v.
Natl. Life Ins. Co.. 64 Ind. 1.
I Stoutenburgh v. Hennick, 129 U. S. 141.
NEED OF A NATIONAL
INCORPORATION LAW
primary or sole purpose for which the corporation is created, and
the state in which it seeks to carry on its transactions objects, and
it is not desirable to clothe the National Government with such
power. A constitutional amendment proposing to give to the
National Government power to create a corporation, or authorize a
state-created corporation, for private business purposes to go into a
state and against its consent to establish and operate a manufacturing plant there, I believe would and ought to be resented by every
state. But no such power or authority is needed. If the government can obtain control over the corborations that do the growing,
mining or making of things, it will have ample power to solve our
difficulties; but if it cannot obtain this control in a way to exercise it
directly and unequivocally, then it is doubtful it the national arm is
long and strong enough to extricate us from our perils.
As things now are the manufacturing companies do the trading;
the National Government has control of the trading,but neither the
manufacturing,nor the company that does it; if the process can be
reversed, so that the trading combany,incorporated by the National
Government, will do the manufacturing, then both the tradingand
the company doing it, can be directly controlled, and the manufacturing, also, incidentally, so far as the regulation of commerce may
make necessary. It is believed this is enough, and nothing else is.
The question is, then, can a National transmission, transportation, or trading company, be authorizedto engage in growing, mining, or making things,-in the states, if they do not object? I
think so: (1) Because making or producing things is incidental
or necessary to each of the other operations.
A railroad company
would have the right to repair its cars, and nearly every such company has extensive shops for repairing and constructing its cars;
and if they can construct for anypurpose, they can be given the right
to sell, at least outside the state.
(2) Such has been the practice
already. All the Pacific railroads were authorized to carry intra as
well as inter-state freight; National banks do an ordinary private
loan and discount business as well as issue notes; the Union and
Central Pacific charters permitted them to mine coal for their supply, then in the territories, but since in the states through which
they pass; the Maritime Canal Company is authorized to construct
and operate a canal, in a place where the United States has no jurisdiction. (3) If the states can give authority to do such things
away from home, which by comity is sufficient for the company,
there seems to be no reason to think a federal corporation cannot
MICHIGAIN LA W REVIEW
be given the same power, which will also be effective through the
comity of the state -where exercised. (4) Now a federal corporation may be created in the District of Columbia or a territory to
carry on a manufacturing business there; such a corporation, if its
charter does not forbid, may by comity engage in such manufacture
in any state, the same as a state-created corporation; the fact that
the National Government also expressly authorized it to engage in
interstate trade or transporation would not limit its power, by comity, to carry on its manufacture wherever it was not forbidden. (5)
But the power to engage in trade or transportation necessarily
implies the power to secure something to trade or transport; the
National Government may authorize such a company to acquire these
things by contracts of purchase and sale, in any state; if a trading
company can buy the things in which it deals, there is no good
reason why its charter may not allow it to make the thing it trades
in if the state where it does this, does not object. So I believe that
ifthe National Government can create a tradingcompany, the Nation,
in the charter, and the states by comity, can and will allow it to do
manufacturing in any state. There seems to be no direct authority
on the matter, but what there is leans that way. Such intra-state
business probably is, and would be, subject to state laws.'
Taxingfiower: The National Government also has at its command the laxing power; if direct taxes are levied they must be
apportioned according to population, 2 if indirect they need not be
so, 3 but must be uniform throughout the country; it can reach the
property and transactions of all persons natural and artificial, subject to the foregoing provisions, and a few others not important in
The power to tax is the power to destroy as was
this connection.
said in Mculloch v. Maryland,4 and this power has been used by
the National Government to produce a unilorm currency by taxing
out of existence the issues of the state banks, in favor of the National
banks, and such a tax was held to be constitutional.5 The consequences of this decision were pointed out by Mr. Justice Nelson in
his dissenting opinion 6 as follows:' Reagan v. Mercantile Trust Co.. 154 U. S.413; Smyth v. Ames, 169 U. S.466, 519-22; California v. Pacific R. R. Co.127 U. S.1; Central Pacific R.R. Co.. v. California, 162 U. S.91.
2 Pollock v.Farmers' Loan & T. Co.. 158 U. S.601.
3 Nicol v. Ames, 173 U_ S.509.
4 4 Wheat. 316 (1819).
5 Veazie Bank v. Fenno, 8 Wall. 533; Caseyv. Galli,94 U. S.673; National Bank v.U. S., 101
u.S. I.
' In Veazie Bank v.Fenno. 8 Wall.533.
NEED OF A NATIONAL INCORPORATION LA1 W
"It is true the present decision strikes only at the power to create banks,
but no person can fail to see that the principle involved affects the power to
create any other description of corporation, such as railroads, turnpikes, manufacturing companies and others."
Such a tax is not a direct tax, and required to be apportioned, but
is a tax or excise on a privilege, business, employment or occupation.' It perhaps would have to be uniform upon the same subjects throughout the country.
A corporation formed by the National Government, not only would
be subject to the control of that government in mauy ways that it
could not otherwise be, but in addition might be made subject to a
franchise fee or tax that need be neither uniform nor afifiortioned
as direct taxes are.
Treaty making power: It has been said that the National Govern ment could not exclude an English manufacturing company from
coming into any state that did not forbid it and there carrying on its
manufacturing business,-and hence the National Government
Such certainly is a mistake.
could not reach such a condition.
Congress can forbid natural persons from entering the states for any
purpose, and it certainly has as complete power over alien corporations as over alien natural persons. The right to exclude in this
case is not based wholly on the commerce clause,but on the treatymaking power also.
V. MJethods of control. If our analysis has been correct the
thingL, to be controlled are interstate commerce, and the corfiorations
engaged therein; as things now are, the first is within the exclusive jurisdiction of the National Government, and the second, merely
as a corporation,-what it is, who shall be its members, how it
shall be constituted, the officers it shall have, and their powers,
functions and relations to the members, the amount of stock, the
kinds of stock, the consideration for which it is or may be issued,
the transfer of its shares, the right to hold shares in other corporations, or to allow its shares to be held by other corporations, the
right to consolidate with other corporations, to sell all of its stock
or property and go out of business, to lease its property to other
corporations, the liability of its officers and members to other persons, the dissolution and winding up,-in short, every thing relating to its birth, anatomy, organization, existence, mode of action,
and death,-is now exclusively within the power of the state
creating the corporations. As a corporation it is responsible alone
I Nicol v. Ames, 173 U. S. 509.
MICHIGAN LA W REVIEW
to the state that creates it, and to no other.' Only certain acts that
it may undertake to perform, which are under the jurisdiction of
some other government, give the latter any power over such a corporation, and then only in naming the terms and conditions under
which those acts may be performed.
The available methods of procedure are therefore three: (1)
State control of state-created corporations; or (2) State and
National control of state- created corporations; or (3) National con trol of national corporations,-engaged in national commerce,
interstate and foreign.
1. As to the first, as things now stand, we have before seen the
practical impossibility of success in this direction. This is generally acknowledged on all sides. It has therefore been proposed
that the National Government relinquish, by an act of Congress, all
power of control over the interstate commerce of manufacturing
and trading companies to the states. In the first place it is doubtful if such an act would be constitutional. The cases upon which
such an idea is based are far from sustaining a general act relinquishing control over such commerce, except in a few cases like
selling intoxicating liquors2 or convict made goods, and as the
Court said, "It does not admit of argument that Congress can
neither delegate its own powers nor enlarge those of a state,"such an act of Congress can be valid only in a case of a state law
"which could not operate upon articles occupying a certain situation until the passage of the act of Congress."
But again, if Congress should do so, and the relinquishment of
its power was constitutional, its operation throughout the country
could or would not be uniform,-it must necessarily vary with the
different states,-and we would have substantially the conditions
existing before the formation of the government under the constitution,-an infinite variety of annoying commercial obstructions.
Such a scheme also, that left out regulating the railroads would
not reach half the problem. Still further it would be ineffective,
unless it forbade the sale of trust made goods, in the case of a
trading company, or forbade individuals as well as corporations from
sending such goods into the state; otherwise the goods might be
sold by the offending corporation to an individual purchaser in an
adjoining state that did not forbid, and he could sell them in the
i
State v. Curtis, 36 Conn. 374.
SIn re Rahrer, 140 U. S. 545.
.NEEDOF A NA TIONAL INCORPORATION LA WV
state objecting. But still further if effective to the point of exclusion, it would result only in isolating that state from the others,
and enable its own industries to charge higher prices.
2. As to the second method, state and federal control of statecrealed corporations. It perhaps is necessary here to take an inventory of the arsenal at hand. And first on the part of the state: (1)
It has entire control and jurisdiction over its own corporations and
their actions; (2) It has no control or jurisdiction of a corporation
merely as a corporation formed in another state,-what it is, or may
do, is for the state that creates it to determine; (3) It has no control over the interstate commerce of such corporation; (4) It has
the power to control, or fix the terms upon which a corporation
created in another state may enter into the state and carry on business there, other than interstate commerce; (5) All the states
together could enact uniform corporation laws, and uniform laws
for the admission and control of foreign corporations,-but the
probability of such a thing being done is an idle dream.
Second, on the part of the National Government: (1) It has power
to control interstate commerce, possibly to the extent of prohibiting
it, though in the case of "a healthy commodity of trade, a necessity
to life," it is doubtful if Congress could impress it "with a permanent condemnation," so that it could not be exported out of one state
into another." ' (2) It can tax any one for the privilege of engaging ir interstate commerce, if all are taxed uniformly, good and bad,
alike. (3) It has no jurisdiction over a state-created corporation,
merely as such, to prescribe what shall be its powers, rights or
privileges; these are for the creating state to determine. The
National Government can reach it only through the taxing or commerce power.
The recent discussions have centered around the state and
national anti-trust acts, and the inter-holdings of stocks by corporations actually engaged in interstate commerce, and holding of the
stocks in such corporations by other corporations not in any other
way engaged in interstate commerce. But they will arise in, and
have to be decided in connection with a telegraphlt company,--say
like the Western Union Telegraph Co.; a railroad company, as in
the Northern Securities Company; a manufacturing company, as
the United States Steel Corporation; and a trading corporation.
The anti-trust act of the National Government provides:2
Mr. Stimson, Opinion to Indus. Corn. Rep. Vol. XIX., p. 705.
MICHIGAN LA W RE IE W
" 1. Every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several states, or
with foreign nations, is hereby declared to be illegal. Every person who
shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and on conviction thereof,
shall be punished," etc.
" 2. Every person who shall monopolize, or attempt to monopolize, or
combine or conspire with any other person or persons to monopolize any part
of the trade or commerce among the several states, or with foreign nations,
shall be deemed guilty of a misdemeanor," etc.'
The state acts differ somewhat from this, but for the purpose of
this discussion, this may be taken as a fair sample of the general
tenor of the state acts, except that they relate to commerce within
the individual states,-some thirty-two 2 of the states having antitrust acts of various degrees of stringency.
These acts make contracts, and combinations, of the kind named
and monopolies (whatever that may mean in the statute), crimes
which neither of them would be without the statute. Without any
statute such contracts and combinations in unreasonable restraint
of trade, were looked upon as ullra vires in the case of a corporation not expressly authorized to make such contracts, to such extent
that the state that created such offending corporation might by
quo warranto proceedings forfeit its charter, or enjoi± carrying out
such a contract. 3 Aside from this case of a corporation, the state
had no right to complain of contracts in restraint of trade,-it could
only refuse to enforce them in a suit between the offending parties,
and could not enjoin the parties from carrying them out, if they
were willing.
Some of the questions involved are raised in the two Northern
Securities cases-the state case, 4 and the national case, 5 now both
before the Supreme Court.
The first involves the state's power, and the second the National
Government's power. In the state case the question is whether
certain acts in the way of organizing the Northern Securities Co.,
incorporated in New Jersey, and which exchanged its shares for the
shares of a majority of the shareholders in the Great Northern Railway Co., incorporated in Minnesota, and for the shares of a majority of the shareholders in the Northern Pacific Railway Co., incorI Act
of July 2, 1890, 26 Stat. at L. 209
2 2 Indus. Corn, Report.
3People v. North River Sug. Ref. co., 121 N. Y. 582; State v. Standard Oil Co., 49 U.S. 137.
4 Minnesota v. Northern Securities Co., 123 Fed. 692.
r U. S.v. Northern Securities Co., 120 Fed. 921.
NEED OF.A NATIONAL
INCORPORATION LAW
porated in Wisconsin, violates the Minnesota anti-consolidation
of parallel lines of railway act, and the anti-trust act ot that state.
The decision of Judge Lochren'says they do not.' An appeal has
been taken to the Supreme Court, and argued, but not yet decided.
If the decision of the lower court is sustained, it will destroy any
effective state control of interstate railways, leaving no remedy in
the state except a repeal of the charter (if the right to repeal exists,
which we understand is not the case with the Great Northern),
or condemning the lines of the offending companies under the power
of eminent domain, 2 and the state undertaking to operate them, or
turning them over to a company formed as the state shall direct.
Besides such a decision holding that such acts on the part of the
organizers of the Northern Securities Company, do not violate the
Minnesota anti-trust act, will make the trusts acts of the other
thirty or more states of no legal consequence in preventing such combinations of interstate railways; such decision would seem also necessary to substantially annul the national act as a method of regulation.
If the decision of Judge Lochren is reversed on the ground that
the act of organizing the Northern Securities Company, and giving
it, through stock ownership, the control of two parallel lines of railway, violates the anti-consolidation law, as it seems tome the Court
is likely to hold,-all states having such laws will have some
autho~ity over such lines within their state; but this pushed to
the last extremity only enables the state to prevent them from being
operated within the state under one management, and to be entirely
effective would result in cutting the roads up into sections limited
by the lines of such states as had or enforced such a law.
If the decision is reversed on the ground that the merger violates
the state anti-trust act, then Minnesota and the other states having
similar acts, could enjoin the operation of such roads in their respective states, by such offending company; but this, also at the last
extremity, could be enforced only by breaking such lines up into
In both the foregoing cases,
sections limited by state boundaries.
the laws of Minnesota, without being supplemented by the national
law of a similar kind, could not prevent the lines of these companies
being operated together under the Northern Securities charter in an
I Minnesota v. Northern Securities Co. 123 PIed. 692.
2 Xl'e and North Xast Railroad v. Casey, 26 Pa. St. 287 (1856); People v. O'Brien, 111
N.Y. 1 (1883).
MICHIGAN LA W RE VIE W
adjoining state that did not object. Even if both companies were
organized in Minnesota, and the state could compel a surrender of
the shares by the Northern Securities Company, such a proceeding
would not prevent the same persons incorporating in the adjoining
state with the same amount of stock and turning it over to the
Northern Securities Company, vesting the management of the parallel lines in the adjoining states in that company. In other words,
such remedies as the state might enforce, if they had full power
would be finally only to break continuous interstate railroads into
state sections under separate companies,-and then the remedy
would be worse than the disease.
But if the decision is reversed on the ground that the state anti trust act was violated, it would almost necessarily follow that the
national anti-trust act was violated also. This is the question directly involved in the government case, and the decision of Judge Thayer
is to the effect that the merger was formed by a "contract in restaint
of trade or commerce among the several states,"' substantially on
the ground that the natural and inevitable tendency of the merger
would be a restraint of such trade, and that the parties must have
contemplated and intended the natural consequences of their acts.
This decision has been severely criticised,2 though under the evidence
and facts that seem to have been brought out the court did not appear
to go far astray in refusing to believe the men who formed the company were too dull or too stupid to comprehend the natural result of
their acts. This decision is now before the Supreme Court for consiAeration and if sustained upon the principles laid down in the unanimous decision of the court below, or upon the ground so clearly
and so succinctly stated by Sir Frederick Pollock in a recent review,3
will yet leave many unsolved problems, such as, will it apply to the
case of the purchase outright of one railroad by another as was done
by the two companies, the Great Northern and the Northern Pacific,
in the purchase of the Burlington? Or to a company formed as
the Western Union Telegraph Co? Or to a manufacturing company,
I U. S.v. Northern Securities Co. 120 Fed. 721,
2 Prof. C. C. Langdell. in 16 Harv. L. R. 539; 17 Harv. 14. R. 41. The decision in the Merger
Case, by J. L. Thorndyke, (I have not seen this pamphlet, published by Iittle, Brown &
Co.) See also "Considerations on the State Corporations in Federal and Interstate Relations," by Carmen F. Randolph, Columbia, L. R., March, April, May, 1903. This is much
the best argument according to my view, that I have seen.)
s The Merger Case and Restraint of Trade, Sir Frederick Pollock, 17 Harv. L. R., Jan.
1904, p. 151.
NEED OF A NATIONAL INCORPORA TION LAW
as the United States Steel Corporation? Or to a purely trading company as some of the great department stores? Or to the inter-holdings of stocks by companies engaged in the same or different kinds
of businesses? Or to an insurance company,or one of a similar kind,
purchasing in the market enough stock to control various railways
or manufacturing companies, primarily forinvestment, and incidentally aesulting in management? No one of these questions can be
completely answered by the decision of the government case, for
they are not involved; they can be answered only after long continued litigation, every step of which will be stubbornly contested.
It is more than doubtful that all or even most of these will be held
to violate the anti-trust act. But suppose stockholding combinations such as the Securities Co. is, is declared to be illegal. Is it not
certain that in some state, a corporation similar to it will be formed,
its stock subscribed, the money paid in, and, the sum used to buy
outright the property of competing companies? Will that be illegal?
To take the case of the Western Union Telegraph Co. It was formed
largely out of consolidations with, and purchases outright of the
stock or property or both of, various other companies, all
perhaps lawful by the laws of the places where they occurred
and were completed before the national act was enacted. It has
only a single competitor throughout the country of any consequence
-the Postal Telegraph Co. It has been stated that these two companie. nave such an understanding about rates asto violate the antitrust act; but suppose they have not; nevertheless, the Western
Union Telegraph Co. is, and has been, one of the most complete
monopolies in the country, using that word in its popular significance, as expressing the condition .of things that is deemed menacing. It is more than doubtful that the purchase outright of the
property of one company by a competing company would be
within either provision of the national act,' and if it was held to
be it is more than likely the act would be unconstitutional.
Suppose the Postal Telegraph Company should fail, wind up its
affairs, tear down its poles and go out of business,-then the
Western Union Company would become the sole seller of telegraphic
communication. Would the national anti-trust act apply? Would
there be any contract in restraint of trade there? Would the second
I U. S. v.
.
C. Knight Co., 156 U.S.
1; State v. Shippers Compress Co. -Tex. -,69S.
W.
58; TrentonPotteries Co. v. Oliphant, 58 N. J. q. 507; but compare Harding v. Am. Glucose
Co., 182 M. 551: State v. Schlitz Brewing Co., 104 Tenn. 45.
MICHIGAN LAW REVIEW
section :-'"Every person who shall monopolize," apply to one who
became the sole trader because his competitors went out of business
without his having anything to do with it? It is apprehended not
-no one certainly could be punished for the legal acts of another
done without participation by the former. Yet in sober fact would
not the monopoly be greater, and the effects worse, and is not this
the thing that is really feared,-the unregulatedbig thing,-thething
that has, because of its size, extent of operation, and interest, the
power to do harm if not harnessed? And what is here said of the
telegraph company applies to railroad, trading, or manufacturing
as well. Most people are more afraid of one uncaged lion than of a
thousand properly caged,-and the danger is vastly greater. The
road to regulation through anti-trust, anti- contract- in-restraint of
trade, and anti-monopoly acts, is long, uncertain, inefficient, and
inadequate in the end,-and may destroy the very thing, which if
properly regulated, is desirable or necessary for the welfare of all.
But suppose all these were held to be within the act as it now
stands, or one that miiht be made. What would be the result? The
vast bulk of our business would be under the ban of illegality, and
have to be reorganized. How? Under the same state corporation laws
as before, or as they might be amended to meet the changed conditions.
Has any one any reason to believe the new regime would be better than
the present? Would not the same diversity of view, policy, legislation, and result as now exist soon grow up again if organization had
to proceed under state laws.
After all does it not come back to a question of size and power?
Can anything less than marking a limit as to size, or strict
regulation otherwise, be effective? No state can fix a limit of
size except for its own corporations; and no state can fully and
completely regulate any but its own corporations. Never can or
will the action of all the states be uniform in these particulars. As
has been said before, the thing to be regulated is the big thing, the
big, menacing corporation; its national commerce is to be regulated;
its holding of stock in other companies is to be regulated; its power to
consolidate is to be regulated; its issue of shares is to be regulated;
its promotion and organization are to be regulated; its capitalization is
to be regulated; its competition with others throughout the country
is to be regulated. These are the things necessary to be done for
the welfare of all. One state might do all these things except
regulate the interstate commerce of the corporation it formed,-and
do them well. Another state mighi do the same things ,-but do them
NEED OF A NATIONAL INCORPORATION LAW
wrong; and in the forty-five states there would be some that would
do them all wrong; that is the condition in which we now are and
from which we seek relief.
3.
the third method. A national incorporationlaw. No power
or authority to do these in the proper and uniform way resides anywhere except in the National Government. The government, of
course, could act either by prescribing the conditions under which
corporations to engage in interstate commerce might be formed by
the states, and forbid others from carrying on such commerce; or
might itself provide for the formation of corporations to carry on
the interstate commerce of the country. In the former case, in
every particular except what the government prescribed, there
would be variation among the states that would breed differences,
conflicts, and litigation; and besides the state alone would have
direct and positive authority over the corporations it created. Of
what possible advantage could this be, except to retain certain taxing privileges, many of them unjust, or to retain litigation witin
the state courts. But if the foregoing enumerated things are necessary to be regulated in order to give relief from the ills we suffer,
the conditions necessary to prescribe would be so nearly equivalent
to passing an incorporation act by the government itself,-without
retaining control over the creature created, that it seems to me it
would be much wiser to enact a national incorporation law, in such
a mar_,er as to give the National Government unequivocally the
ordinary powers of complete control that any state has over its own
corporations.
That such an act will, in the future, after we have tried and
failed in every other way, be the only simple and adequate remedy
is generally admitted by several who have closely studied the matter,3 yet nearly all shrink from advocating it because of various
imaginary dangers, some of which may be enumerated: (1) ]nor(2) Overburdening the
mous centralization of our government.
United States courts. (3) Substantially bringing all our property
and civil rights under the jurisdiction of the National Government.
Mr. Stimson has stated the general objections as strongly as any
I have seefi:"The notion of 'staterights,' what remains of it, would be riddled.
Ninety per cent of the business of the people would be taken from the control
of their own states and their own courts and put under the control of the
I
Indus. Com.P. Vol. XIX, p. 645; Mr. Stimson's Opinion as Advisory Counsel, to the
Commission, Vol. XIX, p. 711; Mr. Huffcut, Statement to commission. Vol. XIX, p. 722.
MICHIGAN LAW REVIEW
federal government. For in regulating these federal corporations Congress
would control not only their relations with sellers and buyers,1 with their
creditors and stockholders, but with the labor they employed, national eight
hour laws would become possible without constitutional amendment." -
To these something in the way of answer may be suggested.
(1) There is no concentration of power,-all that is to be exercised
now exists in the National Government; there is therefore no shifting of the balance of powers. (2) It has become apparent that the
state governments are unequal to the task,-because they have not,
and never since the Constitution have .had, the power. Because
they can not exercise the power, shall the National Government
refuse to exercise it when the occasion demands, and when it was
conferred upon that government to be exercised "in order
to promote the general welfare" as much as any other power?
(3) But all the-civil rights that are to be so seriously affected, we
now hold and always have held, under the same possibility of being
limited, expanded, and controlled for the benefit of all, when
occasion demanded. (4) But also, it is "we the people" that control in the Iederal Union as well as in the states. The National Government was created to do for the benefit of all, what the states could
not do, within the terms of the Constitution. (5) The burdening
of the courts might occur temporarily, but not likely to any great
extent. Complexity, diversity, conflict, uncertainty, beget litigation. Simplicity, uniformity and certainty have the reverse effect.
But even if otherwise the creation of the necessary courts is not
often made a plea for refusing to relieve a threatening condition of
national extent and operation. (6) Such, or similar, dire results
were predicted from the establishment of National banks, but they
proved to be imaginary and not real.
There seems to be but one supreme legal test involved in this
method,--and that is could the National Government, if it found it
necessary, or desirable, classify corporations according to their size
and extent of operation, and require if found necessary, all above
a certain size to forego the privilege of engaging in interstate commerce, or tax them so it would be unprofitable, unless they
organize under a national act? We believe this question will be
answered in the affirmative. The rest would depend on the wisdom of Congress.
I Th is what Mr. Jefferson argued was the design of the Commerce clause. See quotation given above from him.
2 Opinion to Indus. Com.Vol. XIX. p. 700.
NEED OF A NATIONAL INCORPORATION LAW
Such a national incorporation act should be liberal enough to
encourage honorable industrial enterprises; strict enough to prevent fraud and oppression; should protect from unjust state exactions, but require complete compliance with all the laws; should permit large profits commensurate with great risks undertaken, and
require the risks and liabilities to be assumed and discharged by those
undertaking them; should allow extensive operations and the
power and capital necessary to carry them on, but prevent their
use as a club to obstruct or destroy others as legal as they; and in
general allow great things to be done or undertaken, in subservience to, but not in defiance of, the general welfare; be great to
strengthen the hands and add energy to the capital of the honorable
and dutiful, and be administered by a power strong and quick to
smite the dishonorable and disobedient.
Such an act might preserve for the benefit of all the manifold
economies that can come from large associations for carrying on
large, useful and necessary or beneficent enterprises, and at the
same time shield all from the menace of unregulated greed or cupidity, so far as such ends can be accomplished by law administered
by human officers and tribunals.
UNIVECRSITY OF MICHIGAN
H. L. WILGus